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Gold Prices Lift as the US Dollar Battles Sentiment. Will XAU/USD Break Higher?

Gold Prices Lift as the US Dollar Battles Sentiment. Will XAU/USD Break Higher?

Daniel McCarthy, Strategist

GOLD, XAU/USD, US DOLLAR, Omicron, DXY INDEX, US YIELDS - Talking Points

  • Gold rallies as the improving economic outlook weighs on USD
  • Omicron may not be as severe as first thought but doubts remain
  • Rising yields haven’t helped the US Dollar. Where to for XAU/USD?

Gold prices have benefitted in the last few sessions from a weakening US Dollar as Omicron fears recede and risk assets have been appreciating.

A number of studies published this week have shown preliminary findings that the Omicron variant of Covid-19 may not be as severe as initially estimated.

Two studies in the UK and one from South Africa, the latter of which was where the variant was first identified, have revealed notably lower hospitalisation and mortality rates. This has lessened fears of a severe economic crunch from the latest variant. However, the studies also caution that the variant appears to be highly infectious.

Recent data out of the US was mostly in line with expectations, but durable goods orders and the University of Michigan consumer sentiment index were slight beats, adding to positive sentiment.

Recent modest gains in global equity markets have added to the recovery from Mondays sell-off, as sentiment improves going into the holiday period.

Although US Treasury yields have been nudging higher across the curve of late, they are still well below their November highs.

A rising yield would normally be seen as negative for gold, but as yields rise, the capital value of a bond falls. This highlights the current market preference for risk assets over defensive havens.

The DXY index is a measure of the US Dollar against a basket of currencies (EUR, JPY, GBP, CAD, SEK, CHF) and it has been moving lower. It is this overall USD weakness that is underpinning gold prices for now.

GOLD TECHNICAL ANALYSIS

The gold price has been appreciating toward the top end of the 1753.10 – 1816.50 range that it has been in for over a month.

This sideways price action has seen volatility decrease significantly as illustrated by the narrowing of the 21-day simple moving average (SMA) based Bollinger Bands.

The holiday market malaise, that appears to have already started, is further shown by all of the short, medium and long term SMAs sitting between 1785 and 1800.

Resistance might at the pivot points and previous high of 1813.94, 1815.60, 1834.14 and 1877.15

While on the downside, support could be at the pivot points and previous lows of 1761.99, 1758.93, 1753.10 and 1721.71.

GOLD CHART

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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